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Reforms may open door to Mexican oil

A shifting political landscape, sagging oil production and growing global competition are pushing Mexico towards constitutional changes that would open its energy sector to international investors for the first time in decades.

A shifting political landscape, sagging oil production and growing global competition are pushing Mexico towards constitutional changes that would open its energy sector to international investors for the first time in decades.

President Enrique Pena Nieto is set to send lawmakers proposed constitutional amendments that would allow international players to share potential profits - as well as risks - from Mexico's oil projects with the state-owned Pemex.

The proposal comes after years of declining oil production and could breathe fresh life into Mexico's economy through an energy renaissance similar to the one taking place in its neighbour, the US.

"The energy reform process is crucial for Mexico - it is the mother of all reforms," said Duncan Wood, director of the Mexico Institute at the Woodrow Wilson International Centre in Washington.

"So much hangs on the success of Mexico's energy reform - economic growth, the competitiveness of the country, potentially massive job creation, fuel prices and the historical legacy of the Pena Nieto administration."

However, it would be a profound change for a nation that essentially has barred foreigners from ownership in crude oil projects since the 1950s.

Mr Pena Nieto, of the Institutional Revolutionary Party or PRI, has identified opening up the energy sector to international investment as a key goal for his presidency.

Mexico's two major opposition political parties - the conservative National Action Party, or PAN, and leftist Party of the Democratic Revolution, or PRD - have acknowledged the need for change. The day after Mr Pena Nieto took office in December, the three major parties jointly formed the Pact for Mexico, a broad set of social and economic principles, including a commitment to retain control of the nation's energy resources. But the parties are not in agreement on the details of attaining that goal.

Mr Pena Nieto's model seems to have the support of the PRI and the PAN - enough to provide the two-thirds legislative vote required for constitutional amendments.

"President Pena Nieto is going to get a reform passed because the PRI and the PAN have both endorsed fairly similar proposals," said Bill Richardson, a former New Mexico governor and US energy secretary.

"I think that is going to be an enormous job generator and energy generator, not just for Mexico but for the hemisphere, and it is going to open up the possibility of partnerships with states like Texas in renewables, and offshore and natural gas."

The PRD favours more limited changes and has said it will fight amending the constitution, suggesting it could lead to the privatisation of Pemex.

Earlier this summer, the party led widespread protests against Mr Pena Nieto's proposals. Andres Manuel Lopez Obrador, the party's candidate who lost to Mr Pena Nieto in last year's presidential election, is planning more protests next month.

Supporters of amending the constitution say it would not lead to foreign control of the national oil company, and allowing foreign companies to invest directly in projects with Pemex could give it access to the multinationals' advanced technology and know-how.

"Pemex currently [is in] a straitjacket," said Gabriel Salinas, a Houston lawyer who often works in Mexico City. "They have not had the operational and administrative and financial flexibility to be a successful company because of legal restrictions."

These restrictions specify the kinds of contracts Pemex can establish, and often lead to project decisions driven by domestic politics rather than industry economics.

"Pemex does not control its profits," Mr Salinas said, "so they cannot use freely their profits for exploration, which is a basic activity for an oil and gas company."

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